According to the Ministry of Finance of Kyrgyzstan, in 2022 the republic had to pay more than 22.6 billion soms on obligations to external creditors. However, just over 22.1 billion was actually assigned to debt service. The savings were made for several reasons. Among them are successful negotiations on the postponement of part of the payments, as well as fluctuations in the exchange rate, which proved to be beneficial for the Kyrgyz side.
The Ministry of Finance of the Kyrgyz Republic relies on debt service costs from its own forecasts at the average annual dollar exchange rate. In the reserve currency, more often than not, it is necessary to “extinguish” external obligations. In 2022, for example, Kyrgyzstan made 85.5% of all debt payments to foreign creditors in dollars. Including – loans that were granted to the republic in Kuwaiti dinars, UAE dirhams, Saudi riyals, as well as those denominated in conditional payment units such as, for example, the Islamic dinar. The rest of the transactions, according to the Ministry of Finance, were divided between the euro, the Japanese yen, the Korean won, the Chinese yuan and loans from the International Monetary Fund in SDRs (special drawing rights – an artificial illiquid reserve and means of payment issued by the IMF).
In 2022, according to the expectations of specialists of the ministry, the average annual dollar exchange rate should have been at the level of 85.5 soms for an “American”. In fact, it turned out to be lower – by 1.62% (84.1 soms).
The unexpected but pleasant result became a kind of compensation for the stress experienced by local elected officials. The behavior of the dollar on the local market made the services concerned quite nervous during the year. The reserve currency exchange rate has increased several times, and twice rapidly. Thus, from February 28 to March 5, the dollar rose from 89.1 to 97.6 soms. And from March 10 to March 12, he updated the record, reaching an unprecedented level of 105 soms! Fortunately, the “American” did not last long at maximum values. At the end of March, it fell to 94 soms, then began a gradual decline, interrupted occasionally by short and not so impressive jumps.
About 17.2 billion soms from the funds allocated by the budget have been earmarked for the repayment of the debt principal. Another 4.9 billion came from interest on debts and covering additional expenses.
The bulk of the funds allocated to servicing the external debt – 13.8 billion som – was earmarked for payments to four major creditors of Kyrgyzstan. About 6.6 billion of them were received by the Chinese side, from which the republic had previously borrowed funds for the implementation of large infrastructure projects, 2.7 – by the Asian Development Bank, 2 .6 – by the World Bank Group, 1.8 billion – by the International Monetary Fund.
Kyrgyzstan’s external public debt is estimated at around $4.3 billion (over 360 billion soms) and accounts for around 60% of the country’s GDP. The authorities of the Kyrgyz Republic offer to reduce the burden of obligations to creditors in exchange for the implementation of “green” projects in the economy.
Direct speech
Akylbek Zhaparov, Head of Government of the Kyrgyz Republic
The World Bank could become the driving force and leader in promoting our initiative to swap foreign debt for “green” projects. It is, in our opinion, capable of internationalizing it by extending it to other debtor countries which are suffering the negative impact of global climate change. Such a mechanism would allow developing countries, on the one hand, to finance environmental projects and, on the other hand, to ensure a stable debt situation. The World Bank and the International Monetary Fund already have similar experience on this issue.
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